Dean Baker's Blog, page 426

Greg Mankiw Says We Have to Tax the Middle Class More

That is the explicit argument in his NYT column today. What is more interesting that what he says is what he doesn't say. There is no mention whatsoever of the possibility of taxing Wall Street, an idea that is now being pushed even by the International Monetary Fund. The U.K. raises between 0.2-0.3 percent of GDP on tax that only hits stock trade, leaving options, futures, and other derivative instruments unaffected. This would be roughly $500 billion over the course of a decade in the Unite...

NYT Claims European Firms Make Location Decisions Based on Spot Energy Prices

Everyone who pays even casual attention to energy prices know that they fluctuate dramatically. The price of a barrel of oil soared from around $40 in 2004 to a peak of $150 in 2008, then fell back under $40 briefly in the wake of the economic collapse later that year. While this run-up and crash was extraordinary, large fluctuations are not. This is why it is surprising to see the NYT tell us that many European manufacturers are planning to move their operations to the United States based on...

NYT on Farm Bill: A Classic in Non-Informative Reporting

Those of us old-timers who think that news reporting is about conveying information were seriously bothered by an NYT article on a plan for a one-year extension of the current farm bill. These bills usually run for 5 years. There had been plans to reduce the subsidies from the level in the previous bill in order to reduce the budget deficit. A one-year extension will not allow these savings to be realized.

However readers of this article would be unlikely to have any idea of the budgetary imp...

More on Capital-Biased Technological Change

Since several people in comments and e-mails raised questions on my earlier post on capital-biased technological change I will try to clarify my point. The original impetus was a Paul Krugman post in which he raised the possibility that changes in technology were causing a redistribution from labor to capital. (He has since written further on the topic.)

My point was to note that this sort of redistribution cannot just be a matter of technology, it also involves a very big role for the laws a...

Does Congress Only Respond to Fluctuations in the Stock Market?

That seems to be the view of the NYT editorial board which concluded a piece on the fiscal standoff by saying:

"But if Congress cannot approve a deal by New Year’s Day, the anticipated sell-off on Wall Street in early January would, one hopes, force House Republicans to budge."

This view, if correct, is truly scary. First, the real impact of failing to come to a deal is the higher taxes and reduced spending which will soon slow growth and raise unemployment if Congress waits too long into 201...

It's Not a Fiscal Crisis!

Let's see, if Congress does nothing then the budget deficit will fall by around $600 billion to a bit more than 2 percent of GDP. How is this a "fiscal crisis?" Of course it's not a fiscal crisis.

It is an austerity bomb. If the higher taxes and reduced pace of spending are left in place over the course of the year (not the first 2 weeks in January), then GDP growth will slow and the economy will likely fall back into recession.

Please explain why the NYT still doesn't have this straight afte...

Consumer Confidence Rose in December: Tell That to the Mayan End of the World Fiscal Cliff Crew

The Serious People who are hyping the importance of a deal on the budget standoff before January 1 have various scare stories that are supposed to make us believe that missing the deadline will lead to an economic catastrophe. Part of the story is that consumers will freak out and stop buying things.

This part does not appear to be supported by the data, as the Conference Board Index of consumer confidence showed a sharp increase in December. Actually, that's not entirely right. The index fel...

Washington Post Pushes Mayan End of the World Story on Fiscal Cliff

Yes, the Washington Post is getting very worried that it will have egg all over its face if January 1 comes with no budget deal and we don't get its promised recession. The paper pushed this line yet again, telling readers:

"Unless the House and the Senate can agree on a way to avoid the “fiscal cliff,” more than $500 billion in tax increases and spending cuts will take effect next year, potentially sparking a new recession."

Of course the potential for a new recession does not refer to missi...

NYT Pushes Mayan End of the World Story on Fiscal Cliff

Perhaps we should be glad that the NYT gives their regular editors vacations over the holidays, but there still should have been someone to stop or qualify these lines:

"For months, President Obama, members of Congress of both parties and top economists have warned that the nation’s fragile economy could be swept back into recession if the two parties did not come to a post-election compromise on January’s combination of tax increases and across-the-board spending cuts.

"Yet with days left be...

Capital Biased Technological Progress: It Doesn't Just Happen

Paul Krugman has been rightly troubled by the continuing shift of income shares from labor to capital. However the explanation he considers in the form of capital-biased technological progress requires a little more careful examination.

Krugman discusses the case where there is an exogenous change in the nature of technology that makes capital relatively more productive than labor. This leads to more capital being used, driving up its price, and less labor being used, driving down its price (...